Newsletter: 2nd Quarter 2007
The who's who of greenhouse emissions trading
In December last year, Prime Minister John Howard put emissions trading back on the Federal Government agenda with the development of his own Task Group on Emissions Trading. The findings of this group were reported on June 1, 2007 and accepted by the Howard Government three days later. The Federal Labor Party released their version of a five basic tests for national emissions trading scheme on May 31, 2007.
Below is a brief on each of the schemes put forward by the Australian Emissions Trading Forum.
Prime Ministerial Task Group on Emissions Trading
The task group concluded that Australian businesses would benefit from placing Australian Government constraints on emissions.
Basic design of the scheme is to apply a cap on permit prices and to allow strategic free allocation of permits to protect emission intensive industries – Cap and Trade model.
- Overall emissions reduction schedule is designed to start moderately, it will periodically be recalibrated by government to make sure targets are met.
- From the outset it will obtain maximum practical coverage of sources and sinks of greenhouse emissions.
- Initial exclusion of agriculture and land use, until practical issues are resolved.
- There will be a mixture of free emissions permits and auctioning permits allocated annually.
- A safety valve emissions fee – designed to limit costs to the economy and businesses.
- Recognition of other credible carbon offset schemes
- Capacity to incorporate or link to comparable national or regional schemes
- Revenue from permits and fees to be used to support emergence of low-emissions technologies and energy efficient initiatives.
Implementation is for four years time.
Australia Labor Party's trading design
There are two major differences with the ALP and the Prime Minister's emissions schemes. First the ALP will ratify the Kyoto Protocol, second they would like to see an emissions trading scheme start no later than 2010.
The five point test for an ALP scheme is:
- The design will be based on the cap and trade model: Emissions are capped, permits are allocated up to the cap and trading is allowed to enable the market to find the cheapest way to meet the cap.
- Effectively reduce emissions: The target is to reach a 60 per cent decrease in emissions by 2050 compared to 1990.
- To be economically responsible: An Australian trading scheme will need to include and account for a Mandatory Renewable Energy Target to encourage development and uptake of new technologies.
- To be fair: the scheme must allow for both costs and benefits to be shared across the community, and will be complemented by policies.
- To recognise the urgent need to act.
State and territory governments' trading design
With several years lead on emissions trading research, the state and territory governments have a more detailed emissions trading scheme. While it contains more detail the model put forward by the states and territory does not deviate too much from the Liberal and Labor proposals. See table for a comparison of the states and territory design verses the Howard Government's.
| Australian NETS (proposed) | PM's Task Group |
|---|---|
| Cap and trade + offsets; to operate 2010-30 | Cap and trade + offsets; to operate from 2011or 2012 to 2020 (initially) |
| National allocation rules (not State by State) | National allocation rules; to replace industry development schemes |
| Caps firm for 1st 10y (rolling fixed 10y + 5y gateways extended following 5y reviews); Targets likely to be in line with long term aspirational goals for 2050 | Caps firm to 2020; (rolling fixed 10y + 10yr gateways extended following 5y reviews); Targets in line with long-term aspirational goal – date and level yet to be determined |
| Hybrid approach with initial free allocation to existing generators, annual free permits to trade exposed sector (as required) and the remainder auctioned. Option to purchase long term stream of annual permits at auction | Hybrid approach with initial free allocation to existing businesses identified as likely to suffer disproportionate loss of value; periodic auctioning of remaining permits |
| No limits on offsets, including from Clean Dev. Mechanism | No limits on offsets, including possible international |
| Electricity (35%) or stationary energy (50%) emissions to be initially covered | Maximum practical coverage; liability on large facitlities; initial exclusion of ag. and landuse |
| Penalty to be a balance between encouraging compliance and a safety valve on costs; no make-up of shortfall | Penalty to be a balance between encouraging compliance and a safety valve on costs; no make-up of shortfall |
| Full banking | Full banking |
| Immediate links if possible | Eventual links to compatible schemes |
| Generators can keep permits on shutdown | Some conditions – free permits to trade exposed, energy-intensive firms conditional on production |
